Correlation Between Elang Mahkota and Erajaya Swasembada

Can any of the company-specific risk be diversified away by investing in both Elang Mahkota and Erajaya Swasembada at the same time? Although using a correlation coefficient on its own may not help to predict future stock returns, this module helps to understand the diversifiable risk of combining Elang Mahkota and Erajaya Swasembada into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Elang Mahkota Teknologi and Erajaya Swasembada Tbk, you can compare the effects of market volatilities on Elang Mahkota and Erajaya Swasembada and check how they will diversify away market risk if combined in the same portfolio for a given time horizon. You can also utilize pair trading strategies of matching a long position in Elang Mahkota with a short position of Erajaya Swasembada. Check out your portfolio center. Please also check ongoing floating volatility patterns of Elang Mahkota and Erajaya Swasembada.

Diversification Opportunities for Elang Mahkota and Erajaya Swasembada

-0.55

Correlation Coefficient

Elang Mahkota  Erajaya Swasembada

Excellent diversification

The 3 months correlation between Elang and Erajaya is -0.55. Overlapping area represents the amount of risk that can be diversified away by holding Elang Mahkota Teknologi and Erajaya Swasembada Tbk in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Erajaya Swasembada Tbk and Elang Mahkota is a relative statistical measure of the degree to which these equity instruments tend to move together. The correlation coefficient measures the extent to which returns on Elang Mahkota Teknologi are associated (or correlated) with Erajaya Swasembada. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Erajaya Swasembada Tbk has no effect on the direction of Elang Mahkota i.e., Elang Mahkota and Erajaya Swasembada go up and down completely randomly.

Pair Corralation between Elang Mahkota and Erajaya Swasembada

Assuming the 90 days trading horizon Elang Mahkota Teknologi is expected to under-perform the Erajaya Swasembada. In addition to that, Elang Mahkota is 1.18 times more volatile than Erajaya Swasembada Tbk. It trades about -0.02 of its total potential returns per unit of risk. Erajaya Swasembada Tbk is currently generating about -0.01 per unit of volatility. If you would invest  47,364  in Erajaya Swasembada Tbk on December 1, 2024 and sell it today you would lose (10,964) from holding Erajaya Swasembada Tbk or give up 23.15% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Very Weak
Accuracy	100.0%
Values	Daily Returns

Elang Mahkota Teknologi  vs.  Erajaya Swasembada Tbk

Elang Mahkota Teknologi

Risk-Adjusted Performance

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Elang Mahkota Teknologi are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. Despite quite conflicting forward-looking signals, Elang Mahkota may actually be approaching a critical reversion point that can send shares even higher in April 2025.

Erajaya Swasembada Tbk

Risk-Adjusted Performance

Very Weak

Over the last 90 days Erajaya Swasembada Tbk has generated negative risk-adjusted returns adding no value to investors with long positions. Despite quite persistent forward-looking signals, Erajaya Swasembada is not utilizing all of its potentials. The latest stock price mess, may contribute to short-term losses for the institutional investors.

Pair Trading with Elang Mahkota and Erajaya Swasembada

The main advantage of trading using opposite Elang Mahkota and Erajaya Swasembada positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Elang Mahkota position performs unexpectedly, Erajaya Swasembada can make up some of the losses. Pair trading also minimizes risk from directional movements in the market. For example, if an entire industry or sector drops because of unexpected headlines, the short position in Erajaya Swasembada will offset losses from the drop in Erajaya Swasembada's long position.

The idea behind Elang Mahkota Teknologi and Erajaya Swasembada Tbk pairs trading is to make the combined position market-neutral, meaning the overall market's direction will not affect its win or loss (or potential downside or upside). This can be achieved by designing a pairs trade with two highly correlated stocks or equities that operate in a similar space or sector, making it possible to obtain profits through simple and relatively low-risk investment.

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Note that this page's information should be used as a complementary analysis to find the right mix of equity instruments to add to your existing portfolios or create a brand new portfolio. You can also try the Pair Correlation module to compare performance and examine fundamental relationship between any two equity instruments.